Can You Use Offshore Trusts in Maryland Estate Planning?

 Posted on December 07, 2025 in High Net Worth Estate Planning

When creating an estate plan, some Maryland residents with high-value estates consider offshore trusts to help manage and protect their wealth. While these trusts can offer certain advantages, they must follow strict state and federal rules. A knowledgeable Potomac, MD estate planning lawyer can help you understand how these trusts work and whether they fit your financial goals.

What Is an Offshore Trust and How Does It Work?

An offshore trust is a legal agreement created in another country to hold and manage assets. The person who creates the trust is called the grantor. That person transfers property or money to a trustee, someone or a company located in another country. The trustee then manages the trust for the benefit of the grantor or other people named as beneficiaries.

Offshore trusts are often set up in countries that have strong privacy laws or low tax rates. Some common locations include the Cayman Islands, the Cook Islands, or the British Virgin Islands. However, setting up a trust in another country does not mean the assets are free from U.S. or Maryland taxes. Residents must still report these accounts to the Internal Revenue Service (IRS) and pay any required taxes.

Are Offshore Trusts Legal for Maryland Residents?

Offshore trusts are legal, but they are very closely regulated. Maryland law recognizes valid trusts under the Maryland Uniform Trust Code. To be valid, the trust must follow both state and federal requirements.

Under 31 U.S.C. § 5314, U.S. citizens must report any foreign financial accounts, including offshore trusts, that hold more than $10,000. The IRS also requires people to report when they create or transfer assets into a foreign trust. If the reporting requirements are ignored, the IRS can impose steep fines. An experienced attorney can help you ensure that your offshore trust is reported and managed according to U.S. law.

What Are the Risks of Using Offshore Trusts in Maryland Estate Plans?

Offshore trusts can be costly and difficult to manage. They often require strict recordkeeping and yearly tax filings. Maryland courts also have limited control over assets held abroad, making disputes harder to resolve. These trusts can attract attention from tax agencies and do not reduce state taxes, so they are often not worth the risk for most families.

Are There Safer Alternatives to Offshore Trusts in Maryland?

Many Maryland residents use local estate planning tools that offer strong protection without some of the risks of offshore trusts, for example:

• Irrevocable trusts can help protect assets from certain creditors and reduce estate taxes.

• Revocable living trusts make it easier to transfer property after death without going through probate.

• Limited liability companies (LLCs) can keep business and personal assets separate, lowering the risk of personal loss.

Maryland’s own trust laws already offer reliable tools for managing wealth. These options can help protect your property, maintain privacy, and plan for future generations without moving your assets to another country.

Schedule Your Free Consultation With a Silver Spring, MD High-Net-Worth Estate Planning Attorney

Attorney Susan Eleff is a highly trained lawyer with more than 40 years of practical experience. She holds an AV Preeminent peer-review rating from Martindale-Hubbell, the highest possible distinction. She also has a 10.0 "Superb" rating from Avvo, that service’s top score. Her long career and respected reputation reflect her dedication to guiding clients through complex estate planning issues with care and precision.

To learn more about your options, call The Eleff Law Group at 301-857-1990 and schedule your free consultation with an experienced Potomac, MD estate planning lawyer.